In Merger Talk, Always Question 'Cost Savings'

NEW YORK (TheStreet) -- The media has reported that US Airways (LCC) is leaning on American Airlines' creditors to sell them the firm, making for a combined entity that would be about the size of United (UAL) or Delta (DAL). US Airways, the media went on to say, would stand to save a lot in costs if it absorbed the troubled American.

But just how much would they save? And how and where would they save it?

Forgive me for asking such inconvenient questions, but too often companies promise piles of cost savings in the prelude to a merger. In the aftermath, of course, those costs savings are harder to come by. As a result, it's important to take at least brief inventory of the cost savings claims. Are they realistic? Delusional?

Problem is, the media regularly swallows the cost savings claims whole. They don't delve or question. Barron's (NWS) was typical. Despite a headline that screamed "US Airways Pushing Hard for American Airlines Merger" and a claim that a deal would "create cost savings," there is not a single, solitary word that gives a clue as to where or how.

The Wall Street Journal waited until the 9th paragraph, but at least they gave traders a bead on where the costs savings might/might-not come from:

"The synergy estimates are based on a number of assumptions, including still-emerging details about how the two airlines' route networks would be combined and what sort of cost savings would come from consolidating facilities, rejecting aircraft leases and reducing management head count and redundant back-office functions."

The Journal made it look easy. Actually, it is easy. Easy and important.

At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers and a money manager before becoming a journalist who wrote The New York Times' "County Lines" column for six years. He also did back-up beat coverage of The New York Knicks for the paper's Sports section for two seasons and covered other professional and collegiate sports. He has contributed frequently to many of the Times' other sections, including National, Metro, Escapes, Style, Real Estate, Arts & Leisure, Travel, Money & Business, Circuits and the Op-Ed Page.

For his "Business Press Maven" column on how business and finance are covered by the media, Fuchs was named best business journalist critic in the nation by the Talking Biz website at The University of North Carolina School of Journalism and Mass Communication. Fuchs is a frequent speaker on the business media, in venues ranging from National Public Radio to the annual conference of the Society of American Business Editors and Writers.

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